The real stories from inside the F1 paddock

Fernandes’s next coup?

While Tony Fernandes has wowed the F1 world with his deal with US giant General Electric, the Malaysian entrepreneur said last week on his Twitter feed that there are more sponsors to come. One that needs to be watched closely is Sonangol, the Angola national oil company. There are certain to be some B2B possibilities if Fernandes’s AirAsia decides to either start flying to Africa, or partner with an African company to create flights to Malaysia. Sonangol owns its own airline called Sonair, which runs mainly domestic services but has a service to Houston and plans for expansion.

Last week the Malaysian former Prime Minister Dr Mahathir Mohamad, speaking at the inaugural Malaysia-Africa Business Forum in Putrajaya, said that “it is the lack of air connectivity that has limited the ties between Malaysia and African nations from flourishing. Perhaps we should persuade Air Asia to fly to Africa”. At the same time the Deputy Prime Minister Muhyidden Yassin pointed out that Malaysian trade with Africa is $7.8 billion a year, which is tiny compared to the country’s trade with Germany at $12 billion. The Paris Air Show this week will see an announcement of another huge deal for AirAsia with Airbus for as many as 200 A320neo planes, worth $18 billion at list price. Airbus plans to introduce the A320neo from the end of 2015. General Electric is likely to win an order to supply engines for the fleet.

Yes, this makes sense. In all levels of (motor)sport, business people use their businesses to finance their hobby (the sport). Fernandes pays GE huge amounts of money for their engines and gets a 15 million discount. 15 million? Well… GE pays 30 million to Team Lotus but gets a 15 million (or thereabouts) cut in taxes because the 30 million is decuctable from taxes (promotional costs, profit reduction so less taxes have to be paid). So 15 million in tax reduction plus a 15 million discount adds up to…

it is like your local restaurant owner sponsoring the local tennis tournament, he pays 1000 euro’s for it, gets 500 euro back from the club (in his own pockets) and the club holds on to 500 euro’s. 1000 euro’s is being cut from the profit or booked as promotional costs so he does not have to pay taxes of about 500 euro’s over it… both are happy and don’t say it does not happen that way.

I have researched them as a company. They do not have a great record. However, the old PM is about to retire and new people are coming and it is always possible that someone will take over who will do the right things. It happened in Malaysia, and it could (possibly) happen in Angola.

I have no idea what they are doing. They have money from some banks which were encouraged to support them by the government. What they do with that money and what results they achieve remain to be seen. Tony F has way bigger businesses that Proton and is more important to the country’s economy in the longer term, which is why Mahathir is “suggesting” he starts flying to Africa etc.

I am not sure that coup d’etat is quite the right word. He wanted to take over the company which has been run badly for years. It is now being run at vast additional expense by someone else and his plans may or may not work. Maybe one day Fernandes will get his hands on Lotus. Time will tell.

Joe, being a pedant, the Reuter’s wire had the Airbus deal over the weekend! Much of it is staggered, some to replace old fleet, but it’s massive. I’ve not torn into it, though i part in jest suggested it was Citi likely to be the leasing agent – that’s not unlikely even if it isn’t Boeing airframes, because that world lives on dollars, and few have the clout of Citi (It was then National City Bank Of New York, which was central to petrodollar policy*, and that repeats)**. Aviation Week reports by implication that this is expansion far moreso than just going for more effocient longer bodied versions.

I agree with aversions as to Sonangol. It’s amazing how close we are all to this, however. Belgian Congo all over, Conrad barely touched it in prose. I wish rather the chaps who do this fascinating financial site ZeroHedge would step into the daylight, so they could be as direct as Joe, not hide so much behind technical analysis, rely on their opinions, but they do a good job to point out there’s no glory in pointing out it’s messier somewhere else. Maybe i didn’t make myself unwell with worry, maybe it’s just indigestion at having proper news sources, my family who thought the sun shone out of my backside went to lengths to protect my sensitivity as a boy.

I thought it very funny, Mahatir suggesting Fernandes fly to Africa. (think beachfront homes in Guinea Bissau, a little spite, a little humor, lots of reality!) but the reality there is out Chinese brethren are very keen to offer an alternative to our perpetualised western brand of colonialism, with much harder cash. Unless and until TF buys out a certain other, longer haired, blonder, impresario (who only got involved because of Blessed Freddie) sadly he’s buying medium range jets only.

This story goes such a long way to counteracrting the fact i made myself physically ill, thinking about the mess about F1 broadcast. I always kept my love of F1 in an “in” crowd until this year, and changed that because i could point to Joe’s blog, which is the kind of blunt common sense non dedicated followers get very quickly – heck my mum watched this year, try that for size!. but having broken that duck, i feel the politics are trying to snatch my baby away again.

Tony has some big clanging ones. I rather wish he was playing F1 full time. That would be a good thing.

I should probably say this, i don’t get much news from the internet. It always seesm to appear well before in books. Reading now, “Open Veins Of Latin America.” which appears to be released by the author under reversionary rights, if you search for it. Otherwise somewhere like Abebooks is my go-to. (at least the deal there is you give the Amazon commission to a small bookseller) Worth also saying, because i was once asked if i worked near to F1, which i do not at all, if you read good books, you get the tools to understand patterns in life for the price of your time and what amounts to a pittance in royalty to the author. F1 is great, because it attracts big characters, it has the history to appeal to the liked of TF.

rpaco, thanks for the links. I rather think no-one trusts anyone else to move anything for them out there, so private airlines are common. Where else did the Antonovs and Tups go? Almost everything looks like a cheap novel plot, and the stories were cheap becasue the reality aplenty.

Sorry, Joe, i’ll jest, but in between races this is “F1 Foreign Affairs” !? :-)

best to all,

– john

*the only sane erudite commentary on this is actually coming from the chairman of the China central bank, wow!

p.p.p.s Joe, i think having suffered harsh devaluations, and being in conflict with the absurd IMF game, M’sia has it sussed now, and the encouragement is very astute. For all my pseudo- political griping, i only get upset when someone is left behind. You know who i mean. So i am not calling out other places or other countries, instead i am drawing the analogies, from our usual perspective, because i think someone in a rather small room is going to be there until F1 sorts itself out, or may in fact be the reason why F1 is in such a mess simply because he is there. – j

i can understand where you’re coming from. I think the phrase you are looking for is “transfer pricing”, even if that usually means cross billing different geographic subsidiaries to pay in a lower tax zone, it also means fidding with the same amount of money to make different effects.

Most of that is so highly illegal, that someone of TF’s stature would be hauled up in an instant.

My sad appreciation, is that it’s far smaller guys who fanny their accounts. Is it therefore, you actually applying small business “ethics” to someone who perforce has to live to the highest standards, brandishing a man who has to stand up clean and proud, with the common much of little wheeler dealers?

I give but one example: i am trying to trace a few million pounds which was supposedly paid to maintain the private building where i live. There are no bloody accounts, at all. Even if there were accounts, they would not be to GAAP or any proper detailed standard, wherein you could look and see rationally calculated valuations, and justifications, for about anything the likes you imply TF might be fiddling. Sure, there are ways to bury much in the small print, but at least the small print is there. I tell you how bad it is, “small” companies in the UK, up to pounds 5MM turnover do not even need an auditor, report only a few lines of numbers. This lot, whom i am dealing with, did not even bother to say they were trading, to Companies’ House, until i pointed out to a court that a dormant company might, err, have problems bringing an action because i told them where to get off as to massive unlikely demands when a involved company was in financial trouble, co-incidentally.

The purpose of my anecdots is this: i am and always have been, far more wary, downright suspicious of in fact, small companies. When you play big games, you expect scrutiny. In fact, you do not ever get to play big time, unless you do understand, and play by, the rules.

Therefore, i dislike wholeheartedly, the continuing insinuation that somehow Tony Fernandes is getting some kind of free ride. This comes, not from any knowledge of the man, but from a lot of working knowledge of crappy small “businessmen”.

Amusing anecdote: “dollar” = “thaler”, thaler was the last local vaguely sound currency before the fiscal mess of Wiemar. Origin of the Landesbanken, which, oooh, has some currency here! I shall leave it up to someone else to parse out (no theses please, bout time we had working theories!) the connexion between printing press booms, and creativity :)